Efficiency in Relevant Product Market

Submitted to:

Mr. Mohd. Atif Khan

Submitted by:

Harish Kumar Salame

Roll No. - 55

Semester VII, Section-B

Hidayatullah National Law University

Uparwara Post, Abhanpur, New Raipur 493661 (C.G.)

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Acknowledgment
I, Harish Kumar Salame, feel myself highly elated, as it gives me tremendous pleasure to come
out with work on the topic Efficiency in Relevant Product Market. I, started this project a month
ago and on its completion I feel that I have not only successfully completed it but also earned an
invaluable learning experience.

First of all I express my sincere gratitude to my teachers who enlightened me with such a wonderful
and elucidating research topic. Without HIM, I think I would have accomplished only a fraction
of what I eventually did. I thank him for putting his trust in me and giving me a project topic such
as this and for having the faith in me to deliver. His sincere and honest approach have always
inspired me and pulled me back on track whenever I went off track. Sir, thank you for an
opportunity to help me grow.

I also express my heartfelt gratitude to staff and administration of HNLU in library and IT lab that
was a source of great help for the completion of this project.

Next I express my humble gratitude to my parents for their constant motivation and selfless
support. I also express my gratitude to all the class mates for helping me as and when required and
must say that working on this project was a great experience. I bow my head to the almighty god
for being ever graceful to me.

Thanks,

Harish Kumar Salame

Roll no. 55

Semester VII, Section B

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Declaration

I, Harish Kumar Salame hereby declare that, the thesis of the project work entitled, Efficiency
in Relevant Product Market is of my own and this project work is submitted to H.N.L.U.
Raipur. It is record of an original work done by me under the able guidance of Mohmd. Atif
Khan, Faculty of Law, H.N.L.U., Raipur.

Harish Kumar Salame

Roll No. 55

Semester VII, Section - B

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Contents

Introduction.5

A. Static efficiency ......................................................................................................................................... 8

B. Dynamic efficiency: ................................................................................................................................. 10
IMPLICATIONS OF MARKET EFFICIENCY ........................................................................................ 12
C. Prevention of redistributions through market power ............................................................................ 14
D. Protection of economic freedom and other goals ................................................................................. 16
Conclusion ................................................................................................................................................... 17
References .................................................................................................................................................. 18

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Introduction

Driven by the desire to understand and explain the impact of investors decisions on financial
markets, the debate on the informational efficiency of stock markets is going on now for more than
40 years. In a larger historical perspective, one could go back to the 18th century to see that even
Adam Smith (1759, 1766) was troubled by the efficiency and self-stabilizing nature of financial
and economic markets, which essentially boils down to the question whether or not stock prices
are in line with the intrinsic value of the underlying financial asset. Fama (1970, p. 383) defines
an efficient market as a market in which prices always fully reflect available information and
makes a distinction between different types of efficient markets based on three concretions of the
concept available information i.e. weak form efficient markets (historical price information);
semi-strong form efficient markets (all publicly available information); and strong form efficient
market (all information, both public and private). In weak form efficient markets it is impossible
to persistently generate portfolio returns higher than the market return by trading on past price
information i.e. technical analysis of stocks is obsolete. A semi-strong efficient market implies that
it is impossible to persistently beat the market by using a trading strategy based on public
information (e.g. newspapers) i.e. fundamental analysis is ineffective. If markets are strong form
efficient, even insider trading on private information will not be able to outperform the market
portfolio, besides by pure luck.

Economic efficiency is about making the best use of our scarce resources among competing ends
so that economic and social welfare is maximised over time.

Allocative efficiency

1. Achieved when the value consumers place on a good (reflected in the price they are willing to
pay) equals the cost of the resources used up in production (i.e. price = marginal cost.)

2. Another interpretation: Where resources are allocated to the production of the goods and
services the society most values.

Productive efficiency

1. Refers to a firm's costs of production and can be applied both to the short and long run. It is
achieved when output is produced at minimum AC 2. Productive efficiency implies a. The least
costly labour capital and land inputs are used b. The best available technology and the most
efficient production processes c. Exploiting economies of scale (getting close to minimum efficient
scale) d. Minimizing the wastage of resources in their production processes.

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Research Objective
The objective for the following research work is to observe that how efficiency in affects the
market competition.

Overview of Literature
1. Competition Law in India: Policy, Issues, and Developments,
T. Ramappa, Oxford University Press, 2006
This book has talked about the basic concept of efficiency.
What is efficiency? And its types that is static and dynamic, and how it affects the market
competition.

Hypothesis
Market efficiency in simple words can be defined as The degree to which stock prices reflect all
available, relevant information. Market efficiency has varying degrees: strong, semi-strong, and
weak. Stock prices in a perfectly efficient market reflect all available information. These differing
levels, however, suggest that the responsiveness of stock prices to relevant information may vary.
Market efficiency is directly or implicitly tested any time a study is performed to identify stock
price reactions to certain events such as dividend announcements, earnings announcements
stock splits, large block transactions, repurchase tender offers, and other public announcements.
Traditionally, event study methodology is used to evaluate the reaction of the market to certain
corporate events. These studies which are specific in nature are designed to measure market
efficiency at certain points in time and only in conjunction with specific events. A more
encompassing or macro evaluation of market efficiency can be made by testing whether or not the
returns in a market follow a random walk process over a longer period of time. Financial theory
predicts that stock prices should fluctuate randomly in the short run if the stock market is efficient.
The semi-strong form of the Efficient Market Hypothesis (EMH) holds that the market
instantaneously absorbs all relevant information as it becomes publicly available. Hence, daily
returns should fluctuate as random white noise

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Research Methodology
This research is descriptive and analytical in nature. Secondary and electronic resources have been
largely used to gather information and data about the topic.

Books and other reference as guided by the faculty have been primarily helpful in giving this
project a firm structure. Websites, dictionaries and articles have also been referred.

Bibliography has been provided at the end to acknowledge the same.

Research Question
For the purpose of this research work there are two question arising. Which are mentioned below:

1. What is efficiency?
2. What is market efficiency?
3. when a market becomes efficient?

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 A. Static efficiency

The concept of efficient allocation Modern economic theory focuses on the optimal allocation of
the resources of an economy. This is connected on the theoretical level with general equilibrium
theory and normatively with the Pareto-criterion. Pareto-criterion is fulfilled if there is no
possibility to increase the utility of any person in the economy without reducing the utility of any
other person. Its normative attractiveness in economics stems from the widely held belief that
interpersonal comparisons of utilities are not possible. This leads logically to the Pareto criterion,
on which individuals easily can agree on and which does not require interpersonal comparison of
utilities. Allocation theory assumes the existence of sets of factors of production (resources),
production functions (technologies), products, and preferences, which do not change. The goal of
efficient allocation implies that the resources of an economy should be allocated to the production
of products in that way that the Pareto-criterion is fulfilled for the whole economy: No person can
be made better off through a reallocation of these resources without reducing the utility of another
person. General equilibrium theory demonstrates that this requires the fulfillment of a number of
marginal and total conditions. On the one hand, general equilibrium theory has succeeded in
defining the concept of efficient allocation (mathematically) precisely. On the other hand, it has
also demonstrated that for any economy an infinite number of efficient resource allocations exists,
depending on different initial distributions of these resources to the persons in the economy.
Therefore for different distributions, different allocations of resources are efficient. The link
between efficient allocation and competition is depicted by the first theorem of welfare economics:
If the assumptions of the model of perfect competition are fulfilled by all markets (product and
factor markets), the decentralised optimising behaviour of all agents (persons, firms) will lead to
an efficient allocation throughout the entire economy, ie the Pareto-criterion will be automatically
fulfilled without the necessity of state intervention (Adam Smith's invisible hand of the market).
It is understandable why the model of perfect competition (despite all its unrealistic assumptions)
still has such a central position in economic theory. From the perspective of the goal of efficient
allocation it is an ideal form of the market and, even more generally, of organizing the entire
economy. Consequently, the welfare-theoretic market failure theory (as the dominant theoretical
basis for economic policy) is based upon the approach that any deviation from the assumptions of
perfect competition leads to some kind of allocative inefficiency and, hence, calls for some
correction of the allocation through economic policy. From that welfare-theoretic perspective, a
number of economic policies (for solving different kinds of market failure problems) are seen as
necessary, and competition policy is only one of them. Therefore, for the economic theory of
allocation competition is an instrument which has the only task of bringing about allocative
efficiency. In competition policy, distinctions are often made between allocative and productive
efficiency. Productive efficiency is fulfilled, if, in any firm the output is produced with the lowest
amount of inputs or factors of production, ie with minimal costs. Productive inefficiencies can
result from the inability to exploit economies of scale, and so-called X-inefficiencies, due to the
problem that managers might pursue goals other than profit maximisation. This distinction plays

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a prominent role in the Williamson-trade off, regarding the welfare assessment of mergers: It calls
for a balance between an increase of productive efficiency through a merger (eg through economies
of scale) and allocative inefficiencies that arise through larger market power (dead weight loss)
. However, it is misleading to view allocative and productive efficiency as two goals on the same
level: Efficient allocation requires all firms to produce efficiently. Therefore, the goal of
productive efficiency is subsumed by the ultimate goal of efficient allocation. This does not
preclude trade offs between different kinds of specific efficiency effects (as in the Williamson-
trade off). It is important to note that allocative efficiency is defined precisely in welfare-theoretic
allocation theory and is closely linked to general equilibrium theory (elaborated by Arrow and
Debreu in the 1950s) and the model of perfect competition. This efficiency concept is also referred
to as static efficiency, because the set of products, production technologies, production factors and
preferences are assumed as given and constant. They are not supposed to change as a result of
competition. The mathematical models are static equilibrium models which do not consider
dynamics (for dynamic efficiency, see the next section 2.C.). From this general equilibrium
concept of efficient allocation, conclusions can be derived for the optimal conditions on particular
markets: Under certain assumptions the efficient solution is achieved through equilibrium prices
at the intersection of the demand and supply curve (implying price = marginal costs and the
maximisation of the sum of consumer and producer surplus). However, the theory of second best
demonstrated that maximizing the surplus in a particular market need not lead to an efficient
solution, if there are eg effects on other markets. From this theoretical perspective, a competitive
market is only an instrument used to achieve efficient allocation. For many economists it is hard
to understand that there might be a real trade off between competition and efficiency. From this
welfare-theoretic perspective, it is plainly evident that efficiency is the ultimate goal, and if
agreements between firms or mergers lead to a higher degree of efficiency, then they should be
allowed. Balance between competition and efficiency effects, as it is assumed in Art. 81(3) or (as
an efficiency defense) in merger control, does not make much sense. It might be necessary to
balance between positive effects on efficiency of a certain business behaviour (procompetitive
effects) and negative effects on efficiency (anticompetitive effects) but not between competition
and efficiency. If a trade off emerges between competitive markets (defined as a market structure
with many competitors) and efficiency, then from this perspective this trade off always must be
decided in favour of efficiency.

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 B. Dynamic efficiency:

Innovation Since it is an undisputed empirical fact that technological progress is the most
important determinant for long-term economic growth, there is also a wide-spread consensus that
innovation and diffusion of new products and technologies is one of the important results effective
competition should bring about. This innovation dimension of competition is often linked to the
term dynamic efficiency. However, it is very important to understand that the term efficiency
in dynamic efficiency does not have a comparably clear theoretical definition like the above-
mentioned concept of allocative efficiency (or static efficiency). In the end, dynamic efficiency
does not mean much more than that it is normatively preferable that innovations are generated and
spread. Although the question can be raised as to what the optimal amount and velocity of
technological progress should be, the specific characteristics of innovation processes make it
impossible to define such an optimum clearly. The main problems are the high uncertainty and
unpredictability of innovation processes, which renders it impossible to know the outcome of
research ex ante. Innovation processes cannot be treated as production processes (with predefined
inputs and outputs), and, hence, they cannot be satisfactorily analyzed as a pure problem of
efficient allocation.6 This is also the reason why the normative concept of efficient allocation
has been defined on the basis of given sets of products, production technologies, production factors
and preferences. The whole dynamic dimension of the generation and spreading of innovations
(and therefore the change of products and production technologies as well as preferences) is
theoretically excluded from the concept of allocative efficiency. Since economic theory has not
successfully integrated the innovation dimension into general equilibrium theory, the problem of
technological progress and, therefore, dynamic efficiency remains, to a large extent, outside of
mainstream neoclassical equilibrium theory. This is also the reason why innovation economics is
largely influenced by approaches of evolutionary innovation economics. Schumpeter, who
emphasized the importance of the entrepreneur and innovations for economic development,
suggested the need to develop an alternative to traditional equilibrium theory. 7 For example, in
modern innovation economics variation-selection models (in analogy to biological evolution
theory) are used to explain technological progress and economic growth. 8 In this tradition, a
number of dynamic (or evolutionary) concepts of competition have been developed. These
concepts see competition as a dynamic process of innovation and imitation9 or as a knowledge-
generating process of parallel experimentation (competition as a discovery procedure).10 This
perspective vehemently criticizes the model of perfect competition (as an ideal form of
competition). Well-known is the critique of Hayek that the model or perfect competition (with its
knowledge assumptions) already presupposes the knowledge that is generated through the
competition processes.11 Particularly interesting is also the critique of Demsetz, who argued that
perfect competition is not a theory about competition, which he sees as a rivalrous dynamic
process, but a theory about the economic effects of perfect decentralisation.12 What is normatively
meant by dynamic efficiency? It is not as clearly defined as allocative or static efficiency. Rather,
it is used loosely. Without wanting to discuss here different normative concepts that have been

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developed in evolutionary economics, the most convincing approach uses consumer preference as
the normative criterion. Innovations can be seen as normatively positive when they allow a better
fulfillment of consumer preference, ie that they lead to an increase of their utility. However, it is
not possible to define what dynamic efficiency in the sense of an optimal dynamic solution really
means. In some respects both static and dynamic effects of competition can be normatively
measured with this criterion, namely consumer preference fulfilment (which, however, are treated
as constant). This can be seen as a consequence of the most fundamental normative approach in
economics, namely normative individualism, the idea that all normatively relevant values in
society derive from preferences (ie value judgments) of individual members of this society. If we
use the term welfareto the extent that consumer preferences are fulfilled, then we can say that
both allocative efficiency (static efficiency) as well as innovations (dynamic efficiency) increase
the welfare of a society. This perspective on static and dynamic efficiency is widely accepted in
economics. It also seems to be fairly compatible with the normative concept of effective
competition in EU competition policy, because low prices, high quality products, a wide
selection of goods and services, and innovation presumably reflect important preferences of the
consumers. To what extent do trade offs exist between static and dynamic efficiency? The
consensus is that perfect competition does not provide appropriate incentives for innovators,
leading to discussions about the public good character of innovation and the necessity of
intellectual property rights to ensure innovation incentives. However, the problem of potential
trade offs between static and dynamic efficiency is much more complex than this discussion
suggests. Research about the determinants of innovation has shown that the conditions for the
appropriation of innovations advantages can be very complex; 13 often market imperfections
(heterogeneity, tacit knowledge, and limited imitability) can improve innovation activities.
Another aspect of the relation between static and dynamic efficiency refers to the question of
whether a competitive assessment, eg of a merger, should only take into account the short term
effects on prices and quantities (as in merger simulations) or also consider the long-term effects
on innovation. For example, there is considerable concern that in the more economic approach
of EU competition policy, the long-term effects of business behaviour and mergers on dynamic
efficiency are neglected compared to short-term static efficiency effects.

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EFFICIENT FINANCI AL MARKET/ MARKET EFFICENY
In the 1970s Eugene Fama defined an efficient financial market as "one in which prices always
fully reflect available information. The most common type of efficiency referred to in financial
markets is the allocative efficiency, or the efficiency of allocating resources. In an efficient market
no one could outperform the market by using the same information that is already available to all
investors, except through luck. This includes producing the right goods for the right people at the
right price. A trait of allocateively efficient financial market is that it channels funds from the
ultimate lenders to the ultimate borrowers in a way that the funds are used in the most socially
useful manner.

HOW DOES A MARKET BECOME EFFICIENT?

In order for a market to become efficient, investors must perceive that a market is inefficient and
possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are
actually the fuel that keeps a market efficient. A market has to be large and liquid. Information has
to be widely available in terms of accessibility and cost and released to investors at more or less
the same time. Transaction costs have to be cheaper than the expected profits of an investment
strategy. Investors must also have enough funds to take advantage of inefficiency until, according
to the EMH (Efficient Market Hypotheses), it disappears again. Most importantly, an investor has
to believe that she or he can outperform the market.

IMPLICATIONS OF MARKET EFFICIENCY

The three important points that imply market efficiency are:-

(a) In an efficient market, equity research and valuation would be a costly task that provided no
benefits. The odds of finding an undervalued stock would always be 50:50, reflecting the
randomness of pricing errors. At best, the benefits from information collection and equity research
would cover the costs of doing the research1.

(b) In an efficient market, a strategy of randomly diversifying across stocks or indexing to the
market, carrying little or no information cost and minimal execution costs, would be superior to
any other strategy that created larger information and execution costs. There would be no value
added by portfolio managers and investment strategists.

(c) In an efficient market, a strategy of minimizing trading, i.e., creating a portfolio and not trading
unless cash was needed, would be superior to a strategy that required frequent trading.

1
J Vickers Abuse of Market Power [2005] The Economic Journal 111, F244-F261

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MARKET EFFICIENCY LEVELS
They are identified at three levels:

Weak-form efficiency
Prices of the securities instantly and fully reflect all information of the past prices. This means
future price movements cannot be predicted by using past prices.

Semi-strong efficiency
Asset prices fully reflect all of the publicly available information. Therefore, only investors with
additional inside information could have advantage on the market.

Strong-form efficiency
Asset prices fully reflect all of the public and inside information available. Therefore, no one can
have advantage on the market in predicting prices since there is no data that would provide any
additional value to the investors.

THE EFFECT OF EFFICIENCY: NON-PREDICTABILITY

The nature of information does not have to be limited to financial news and research alone; indeed,
information about political, economic and social events, combined with how investors perceive
such information, whether true or rumored, will be reflected in the stock price. According to EMH,
as prices respond only to information available in the market, and, because all market participants
are privy to the same information, no one will have the ability to out- profit anyone else .In efficient
markets, prices become not predictable but random, so no investment pattern can be discerned. A
planned approach to investment, therefore, cannot be successful. This "random walk" of prices,
commonly spoken about in the EMH school of thought, results in the failure of any investment
strategy that aims to beat the market consistently. In fact, the EMH suggests that given the
transaction costs involved in portfolio management, it would be more profitable for an investor to
put his or her money into an index fund.

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C. Prevention of redistributions through market power
Though there is a consensus that competition law should help increase welfare in regard to static
and dynamic efficiency, some dispute has arisen about the aim of competition policy to prevent
market participants from being exploited by firms with market power. Since the beginning of
modern competition policy, the fight against cartels, monopolies, and firms with market power
was largely motivated by the goal to impede the exploitation of individuals and firms on the
opposite market side through market power, especially consumers through firms with market
power on the supply side. Redistributions that are caused not by better performance but only
through restraints of competition and market power should be prevented. However, the recent
debate about total welfare standard vs. consumer welfare standard and about the importance and
design of an efficiency defence in merger control shows that this goal of preventing redistributions
through market power is no longer undisputed - despite the clear pledge of the European
Commission for the consumer welfare standard2. The difference between a total welfare standard
and a consumer welfare standard is well known and can be explained easily. The total welfare
standard implies that in a particular market the sum of producer and consumer surplus should be
maximised (total surplus).

Within the analytical framework of the Williamson-trade off analysis of mergers the total welfare
standard asks whether additional producer surplus, which might accrue through an increase of
productive efficiency created by merger (eg by economies of scale), is larger than any additional
allocative inefficiency (dead weight loss) that results from an increase of market power. However,
it is not necessary to consider the distributional effects that turn a part of the former consumer
surplus into market power profits (and therefore into producer surplus): Such a redistribution
between consumer and producer surplus does not affect total welfare as the sum of consumer and
producer surplus. 16 If a consumer welfare standard is used, then the assessment of mergers -
within the price-quantity-scheme - implies to ask only whether the consumer surplus after the
merger is larger or smaller than before the merger, irrespective of its impact on the surplus of the
producers. This seems to lead to the simple assessment criterion, whether the future market price
after the merger is larger or smaller than before the merger. It is well known that total welfare
standard and consumer welfare standard can lead to different results. In the case of merger control,
there might be a number of mergers, whose pricedecreasing effects through efficiencies are smaller
than the price-increasing effects through additional market power (non-coordinated or coordinated
effects) but whose gains in productive efficiency are larger than the additional allocative
inefficiencies. In these cases, a consumer welfare standard would lead to a negative assessment of
these mergers, even though these mergers would increase total welfare. Consequently, the
consideration of efficiencies in mergers can only impact their clearance under the consumer
welfare standard, if these efficiencies are very large - as in European merger control after its 2004
reform. Many economists cannot understand why merger control ignores the positive efficiency

2
European Commission, DG Competition Discussion Paper on the Application of Article 82 of the Treaty to
Exclusionary Abuses, Brussels, December 2005

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effects of many mergers and, therefore, also prohibits mergers that increase total welfare. Many
economists would suggest the total welfare standard as the relevant normative criterion.18 These
economists readily admit that there might be distributional effects through mergers from
consumers to producers, but these redistributions should not be considered. A well known position
in the law and economics literature argues that analysis of legal rules and regulations should focus
only on efficiency effects, whereas distributional effects should be dealt with through taxation and
social policy.

What is the result of a deeper analysis of the relationship between total welfare, consumer welfare,
and efficient allocation (static efficiency), as defined in section 2.B? Many economic texts give
the misleading impression that total welfare is identical to allocative efficiency (as a Pareto-
optimal allocation of resources in the entire economy), and that it is the consumer welfare standard
which additionally includes distributional issues. In welfare economics, it is clear that allocative
efficiency says nothing about distributional questions. On the contrary, each efficient allocation
is defined on a particular initial distribution of the resources of a society. If this distribution is
changed, then the efficient allocation changes as well. It is not possible to make any normative
statement about the preferability of an efficient allocation A1, based upon distribution D1,
compared to an efficient allocation A2, based upon another distribution D2. This is also shown by
the well known conclusion in welfare economics that there are an infinite number of efficient
allocations in a society, and that the theory of efficient allocation cannot determine the optimal
efficient allocation (there is no so-called optimum optimorum). This is the result of standard
welfare economics, which can be found in any advanced textbook about microeconomics.20 It is
also a logical consequence of the Paretocriterion itself: Since the Pareto-criterion assumes that no
interpersonal comparisons of utilities are possible between different persons, no balancing is
possible between positive effects on one person and negative effects on other persons. The total
welfare standard is not compatible with the Pareto-criterion, because it allows for redistributions
between consumers and producers and, therefore, a balancing between positive and negative
wealth effects between different persons. This implies that the total welfare standard can be derived
neither from the Pareto-criterion nor from the goal efficient allocation. It might be argued that
the consumer welfare standard can be derived from the Paretocriterion, because it stipulates that
through mergers no one should be worse off, ie the criterion that consumer surplus should not be
reduced through a merger can be seen as an application of the Pareto-criterion. The total welfare
concept corresponds to the so-called KaldorHicks-welfare criterion (principle of wealth
maximisation).

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D. Protection of economic freedom and other goals
Other goals of competition policy as eg economic freedom, fairness and justice, protection of
small- and medium-sized firms, international competitiveness and economic integration (in regard
to EU competition law) are usually viewed critically by most economists.30 In German
competition law (and, in the past, also in EU competition law) the protection of economic freedom
is seen as an important goal of competition law 3 . This goal of competition policy has been
developed by economists as well. It can be traced back to ordoliberal concepts of competition
policy and to Hoppmann's concept of freedom to compete (Wettbewerbsfreiheit). In
competitive markets, consumers should be able to choose between different suppliers (freedom in
the exchange process). Freedom of competition also encompasses the freedom of firms to decide
on their action parameters (freedom in the parallel process). Market power might restrict both
freedom of choice in the exchange process as well as freedom to decide on firms' action parameters
in competition with other firms. From this perspective, competition law should protect the
economic freedom of firms and other market participants. Although most economists view
economic freedom as very important, so far no convincing solutions have developed how to
integrate an analysis of economic freedom with an industrial economics approach to competition.
Due to a lacking theoretical access to the concept of economic freedom, most economists either
tend to think that it is somehow also encompassed by economic efficiency, that it should be ignored
altogether or that other fields of law (outside competition law) should be used to protect economic
freedom.32 Legal certainty aims to limit administrative costs, an important objective in any field
of law. There is a broad consensus that these costs must be taken into account in competition law.
However, most economists are not sufficiently aware that there might be large trade off problems
between the approach of analysing the effects of business behaviours (or mergers etc.) upon
consumer welfare on a case-by-case basis and the necessary administrative costs as well as the
direct and indirect costs of legal uncertainty resulting from case-by-case decisions. To this point,
economics has failed to sufficiently analyse the problem of legal uncertainty.

3
European Commission, DG Competition Discussion Paper on the Application of Article 82 of the Treaty to
Exclusionary Abuses, Brussels, December 2005

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Conclusion

The discussion in this section should have helped clarify the economic concepts of efficient
allocation, static and dynamic efficiency, total welfare and consumer welfare. It has been shown
that (1) these concepts have different meanings, (2) economics has large problems in dealing with
distributional effects and (3) the economic discussion about the goals of competition law has
mainly focused on the question of total welfare standard vs. consumer welfare standard. The main
point of this paper is that the discussion on the normative foundations of competition law is not
well-developed I tried to show that economic efficiency- as it is usually defined - cannot be the
final answer to this normative question. On one hand, there are different concepts of efficiency,
with their specific problems and deficits. On the other hand, the discussion in economics, which
is narrowed down to total welfare standard vs. consumer welfare standard, does not sufficiently
grasp the complexity of the normative problems.

Financial market efficiency is an important topic in the world of Finance. While most financiers
believe the markets are neither 100% efficient, nor 100% inefficient, many disagree where on the
efficiency line the world's markets fall. It can be concluded that in reality a financial market cant
be considered to be extremely efficient, or completely inefficient. The financial markets are a
mixture of both, sometimes the market will provide fair returns on the investment for everyone,
while at other times certain investors will generate above average returns on their investment.
Ironically, thinking that the financial market is inefficient and that it can be beaten is what is
actually keeping the financial market functioning efficiently.

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References

2. Competition Law in India: Policy, Issues, and Developments,

T. Ramappa, Oxford University Press, 2006

3. European Commission, DG Competition Discussion Paper on the Application of Article

82 of the Treaty to Exclusionary Abuses, Brussels, December 2005.
https://papers.ssrn.com
Accessed on 2nd October 2017

4. J Vickers Abuse of Market Power [2005] The Economic Journal 111, F244-F261

https://nseindia.com
Accessed on 2nd October 2017

5. RJ Van den Bergh and PD Camesasca, European Competition Law and Economics: A
Comparative Perspective (2006) 247-299.

http://www.emeraldinsight.com
Accessed on 29th September 2017

6. PRINCIPLES OF CORPORATE FINANCE- RICHARD A BREALEY

WWW.INVESTOPEDIA.COM

Accessed on 7th October 2017

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